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Experts Contemplate Implications of Increasing Longevity

Experts Contemplate Implications of Increasing Longevity

By Steven Siegel

Increasing life spans can cause many tribulations, especially for women.

At birthday parties, there is an old Jewish custom to wish the honoree to live until 120 years old–a reference to the age that Moses died in the Old Testament and the biblical view of the maximum lifespan after Moses. This wish, of course, is intended as a blessing. However, as we experience ever–increasing life expectancy the prospect of living to 100, 105 or even 110 no longer appears to be the remotest of possibilities. Is this birthday wish, indeed, a blessing? Or, as the saying goes, should we be careful what we wish for?

These and other related questions were explored recently at the Society of Actuaries? Living to 100 and Beyond Symposium held in Orlando on Jan. 12 to 14, 2005. The symposium was an opportunity for professionals worldwide with an interest in this topic to gather, network and participate in presentations and discussions on the latest related research and findings.

A highlight of the symposium was a discussion on the implications of an aging society by a panel of distinguished experts. The panel, moderated by Jack Paddon, a member of the organizing committee of the symposium, included Dr. Peter Heller, a deputy director with the International Monetary Fund; Anna Rappaport, a recently retired worldwide partner and principal of Mercer Human Re–source Consulting; and Dr. Robert Glesson, medical director of the Northwestern Mutual Life Insurance Company.

Societal and Governmental Implications

Dr. Heller opened the discussion with comments on emerging global societal issues related to longevity trends. Dr. Heller remarked humorously that he had been given ?a very small topic to discuss? in his allotted time. Of course, the issues are vast, far–reaching and represent the potential for enormous change.

Starting with the worldwide governmental impact, Dr. Heller envisions a re–evaluation of the programs that represent the traditional fiscal burdens of governments. The catalyst for this re–evaluation will be that governments will simply no longer be able to afford what they did in the past. This type of re–evaluation might lead to proposals similar to the current Bush administration proposed reform of Social Security or other entitlement program restructuring. Throughout this re–examination process, it will be important that governments take a macro view and consider the interdependencies of all of their programs.

As a byproduct of this re–examination, shifts in the labor market can be expected. With probable reduced government support, workers will more frequently defer retirement and the employer/employee relationship will need to adjust. Inevitably, there will be a practical limit as to how long workers can continue to be actively employed and workers will need to balance this against their own frailties. Will we see 85–year–old counter workers at McDonald's or will there be other forces (societal, biological, etc.) that cause the elderly to withdraw from the labor market at earlier ages?

Given these changes, the structure of the economy most likely will need to realign as the proportion of elderly in the population becomes greater. Clearly, there will be a much higher demand for health care services and need for health care workers. Where will these additional workers and caretakers come from? Will there be a rise in immigration to cover these needs? If so, which economies will be the winners and losers? Concurrently, there will need to be a governmental evaluation of how to ration care and allocate limited resources. This is a dilemma where governments have begun to grapple, but have not formulated any universally effective solutions.

Dr. Heller then turned to the impact of an increase in the number of elderly voters. With these voters usually turning out in great proportions at the polls, a different set of political pressures can be anticipated. Politicians and governments will be driven to rethink their agendas to appeal to these voters in order to retain their offices. And their level of involvement in the needs of these voters will clearly need to be elevated.

Next, Dr. Heller highlighted his views on the genesis of a conflicting role for governments and how they will respond. Essentially, governments will struggle to balance their desire for disengagement with the genuine needs of their elderly constituents. As a consequence of increased life expectancy, welfare and other income programs will be required to ensure the provision of basic necessities. Confronted with these related issues, governments will be forced to decide whether to disregard increasing numbers of destitute elderly or re–energize their welfare and entitlement programs. Dr. Heller cited an example of this in the United Kingdom where a minimal pension system has been supplanted by a welfare system.

Concluding his talk, Dr. Heller remarked that developing future public policy in light of the uncertainty of how these longevity and aging trends will play out is enormously challenging. The setting of fiscal policy and developing of related programs will be extremely sensitive to the magnitude of changes in life expectancy and population morbidity. Emerging markets, such as India and China, that currently have minimal social obligations will be in an even greater quandary trying to determine not only what their level of involvement should be in light of this uncertainty, but also how to avoid the mistakes of industrialized nations. Finally, previous solutions such as pre–funding will likely fall short as it will become more and more difficult to ask the working population to give up a greater portion of its output for the elderly. Consequently, innovative, well thought–out solutions will be critical to meet the upcoming challenges and determine the best trade–offs.

Women More Impacted than Men

Ms. Rappaport highlighted the fact that issues related to the very old largely affect women. Women live longer than men and are the vast majority of the very old population. In a presentation of their paper, "High Age Implications of Post–Retirement Risks" that occurred earlier in symposium, Ms. Rappaport and her co–author, Monica Dragut, noted that many of the very old women are widowed and are likely to need various forms of support. Women living alone are also the most likely to be at the poverty level in old age.

Retirement systems usually provide a higher level of benefits for men versus women because of the typical difference in employment and earnings histories between them.�On average, women work fewer years in the paid labor force and have lower wages. At the same time, they bear much more than half of the family care–giving responsibility.�Although family benefits in Social Security and joint and survivor benefits in private pensions provide partial protection, many older women are left with inadequate support.

Private Sector Financial Products Implications

Continuing on from Ms. Rappaport's views on the drivers of future financial product development, Dr. Gleeson prefaced his remarks with a dramatic representation of why the issue of increased longevity is of such importance. During the lifetime of Christ approximately 2,000 years ago, according to historical records, life expectancy was just 22 years. Around 1,900 years later in 1880, Otto Bismarck declared 65–years–old as the age of retirement when life expectancy was only approximately 47 years. At that time, only 2 percent of the population lived until 65 and then, on average, just two years thereafter. Since Bismarck's declaration a mere century later, life expectancy has astonishingly increased by almost 30 years!

Clearly, Dr. Gleeson noted, this rapid expansion in life expectancy raises profound questions for the public and private sector. Are the systems and policies previously put into place years ago still valid and how will they need to be changed for the future? What should the response be to the combined impact of the upcoming baby boom retirement blip with continued life expectancy advances?

Dr. Gleeson pointed out three primary components that are crucial for the challenges to living to advanced ages: (1) strong social support systems, (2) good health and (3) dependable financial resources. The complexity of this third component lies in planning for the provision of these resources for potentially 35, or even 40 years after retirement. This requires a much more sophisticated approach than, for instance, determining how to allocate savings amongst a portfolio of mutual funds.

Dr. Gleeson concluded with the observation that actuaries have a unique role in determining the optimal solutions for this type of long–term planning. With their background in both mortality risk and financial instruments, actuaries will be called upon to help lead the efforts to meet these challenges.

Conclusion

So, should a birthday wish of long life be regarded as a blessing? From a personal perspective, this symposium attendee came away with a much better appreciation of the myriad of uncertainties and nuances implicit in this question. However, despite all of this uncertainty, one message from the panelists appears quite certain. Educating the public on these issues will be of vital importance–just as it has always been to meet the challenges of tomorrow.

Steven Siegel is research actuary for the Society of Actuaries. He can be contacted at: ssiegel@soa.org